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If Trump wins rand could hit R14/$ - analyst

Cape Town – The rand could hit R14/$ if Donald Trump wins the election, but could return back to R13.50 by the end of the week, an economist said on Wednesday.

“Based on the market sensitivity to the changing election fortunes overnight suggests USD/ZAR would go to R14.00 on a Trump win,” said Rand Merchant Bank analyst John Cairns on Wednesday.

“It would be normal if initial rand moves overshot, with a rand recovery later in the day,” he said. “Expect extremely high volatility: at least 50 cents on USD/ZAR in the 24 hours after the election is called, and as much as 30 cents per day in the following few days.

“Similarly, market panic would presumably also subside as the week progressed,” he said. “It is not inconceivable that USD/ZAR would be back at 13.50 by the end of the week.

“Certainly, a Trump win would have some silver linings, not least that the Fed might not hike in December if he wins (the probability of a December hike is at only 36% this morning).”

Trump’s surprise showing is going to reverberate through global markets, said Cairns.

“Following on the Brexit surprise, markets will be wondering what next, particularly in Europe where there are a few key referendums and elections coming up in the next six months.”

TreasuryOne said Wednesday “will be a roller coaster ride for the rand with every headline from the US potentially driving the rand in a different course”.

“Expect market reaction to be swift should any candidate become the next president,” it said.

"Perhaps it’s time to invest in brick and cement manufacturing companies and look to win the tender for building Trump’s wall," said Wichard Cilliers, head of dealing an a director at TreasuryOne.

"Across the board, its risk off as pollsters seems, for now, to have gotten yet another major global impacting election forecast wrong," he said. "Pollsters yesterday cast their predictions mostly favouring a Clinton victory some as much as 90%. Looking back it now one seems to think we were slightly foolish to place all our hopes in forecasters who got the Brexit polls horribly wrong."

Rand loses 65c in early trade

The rand lost 65c in early trade on Wednesday, tracking losses in the dollar and Mexican peso as results see Trump leading the election.

Markets are selling off, with the Mexican peso down 11%, and pulling other emerging markets down as well, said TreasuryOne in a note to clients.

The rand, which lost almost 5% to R13.83 from an overnight close in New York of R13.18, was weaker at R13.58 by 09:00.

US equity futures are down 4%.

The Mexican peso, a barometer of Trump’s fortunes, tumbled the most in eight years to a record low, while the Turkish lira sank to an all-time low and the South African rand fell the most in four weeks as traders dumped all but the safest assets, reports Bloomberg.

The dollar fell as much as 3.5% against the yen, the biggest intraday decline since the UK’s decision to exit the European Union, 1.8% against the euro and 2% against the Swiss franc.

"Trump has won the battleground state of Ohio, which was key. This caused equity markets as well as currencies to take a plunge. The Mexican peso lost over 10% to trade at a record low. The rand also lost 4.5% to trade at R13.80," said TreasuryOne.

"As it stands, Wisconsin or Michigan can take Trump over the line! If (Hillary) Clinton manages to come back and win both Michigan and Wisconsin, the election comes down to Nevada or New Hampshire.

"Trump would have to win both; Clinton would only need one of the two. The predictions currently puts a Trump win at around 95%.

"We can be in for a very bumpy ride today," said TreasuryOne.


The rand's movement in the last 11 hours has gone from R13.18/$ to R13.56/$. (Photo: Bloomberg)





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